Post-Budget, ELSS Investments Show a Slowdown. The new tax regime has reduced investor interest, but it's still considered a better option for long-term growth.
With only a few days remaining in fiscal year 2024-25, ELSS fund investments, which typically see a surge between January and March due to tax-saving objectives, have shown a decline this year. In February 2025, Equity Linked Savings Schemes (ELSS) funds saw an inflow of only ₹615 crore, compared to ₹797 crore in January. This decrease reflects changing investor priorities and the impact of the new tax regime.
Reasons for the Decline in ELSS Investments?
Financial experts attribute the decrease in ELSS investments primarily to the new tax regime introduced by the government. The new regime offers tax-free income up to ₹12 lakh, reducing the attractiveness of traditional tax-saving tools. Many taxpayers are now opting for the simpler, tax-exempt system, leading to decreased demand for ELSS.
Why the Slowdown in ELSS after the Budget?
According to data from the Association of Mutual Funds in India (AMFI), ELSS fund investments in February 2025 stood at just ₹615 crore, lower than the ₹797 crore in January 2025. Experts believe that the increased attractiveness of the new tax regime has prompted investors to shift away from traditional tax-saving options.
Suranjana Borthakur, Head of Distribution and Strategic Alliances at Mirae Asset Investment Managers (India), notes that while ELSS fund investments typically increase between January and March, the inflow this time has been comparatively lower. She attributes this to the impact of the new tax regime, although she maintains that ELSS remains a superior option for long-term investment.
Is the Era of ELSS Investment Ending?
According to Saurabh Gupta, Senior Fund Manager at Bajaj Finserv Asset Management Company, the deduction under Section 80C of the Income Tax Act, 1961, has been the biggest draw for ELSS. However, with more taxpayers opting for the new tax regime, the popularity of ELSS is waning.
However, ELSS's mandatory three-year lock-in period helps instill discipline in investors and promotes long-term investment. For new investors experiencing market fluctuations for the first time, it can prove to be a stable and beneficial investment option.
What is ELSS and How Does it Work?
An Equity Linked Savings Scheme (ELSS) is a mutual fund that invests the majority of its funds in equities and equity-linked financial instruments. It's the only mutual fund scheme that offers tax benefits under Section 80C of the Income Tax Act, 1961.
Unlike other mutual fund schemes, ELSS has a mandatory lock-in period of 3 years; redemption before three years is not permitted. However, compared to other tax-saving investment options, ELSS has the shortest lock-in period, contributing to its popularity as a tax-saving fund.
